An airline decided to offer direct service from City A to City B. Management must decide between a full price service using the company's new fleet of jet aircraft and a discount service using smaller capacity commuter planes. It is clear that the best choice depends on the market reaction to the service the airline offers. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service to City B: strong and weak. The following table shows the estimated quarterly profits (in thousands of dollars). Demand for Service Service Strong Weak Full price $950 -$510 Discount $650 $310 (a) What is the decision to be made, what is the chance event, and what is the consequence for this problem? The decision to be made is the type of service to provide consequence is the amount of quarterly profit How many decision alternatives are there? 2 How many outcomes are there for the chance event? 2 . The chance event is the level of demand for the service . The (b) If nothing is known about the probabilities of the chance outcomes, what is the recommended decision using the optimistic, conservative, and minimax regret approaches? The recommended decision using the optimistic approach is the full price approach is the discount service. The recommended decision using the conservative service. The recommended decision using the minimax regret approach is the discount ☑ service. (c) Suppose that management of the airline believes that the probability of strong demand is 0.7 and the probability of weak demand is 0.3. Use the expected value approach to determine an optimal decision. (Enter your answers in thousands of dollars.) EV(full) $ 512 EV(discount) $ 548 The optimal decision is the discount thousands thousands service. (d) Suppose that the probability of strong demand is 0.8 and the probability of weak demand is 0.2. What is the optimal decision using the expected value approach? (Enter your answers in thousands of dollars.) EV(full) $ 658 thousands EV(discount) $ 582 The optimal decision is the [full price thousands service. (e) Use sensitivity analysis to determine the range of demand probabilities for which each of the decision alternatives has the largest expected value. (Round your answers to four decimal places.) If the probability of strong demand falls below 0.54481 strong demand is greater than [0.54481 X, the discount , the full price service is the best choice. If the probability of service is the best choice.

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